Our experts at DSR Tax Claims know how hard it is to find good, quality information about HMRC’s tax regulations that is easy to understand, and that’s why we have created these handy guides to tell you everything you need to know. Our aim is to make life easier for our clients and that is why we want to share our expertise with you. You can also call our friendly team on 0330 122 9972 – we’re the tax experts you can trust. Or you can check out our online calculator to see if you could be due a refund.
How does Income Tax work?
As you probably know, how much Income Tax you pay depends on how much you earn in any given tax year. Tax years run from 6th April to 5th April the following year.
How much you have to pay depends on how much income you earn above your personal tax-free allowance, and then how much of that income falls into the different tax bands above the Personal Allowance.
Not all income is taxable – there are some forms of income which are tax-free, such as tax credits, income from ISAs and rental income below a certain threshold if you have a lodger.
What is a Personal Allowance?
Your Personal Allowance is the amount you are allowed to earn before you start to pay tax on your earnings. The current standard Personal Allowance is £11,850, for tax year 2018/19. There are certain factors which may increase your Personal Allowance – for example, if you are eligible for Marriage Allowance or Blind Person’s Allowance.
If your income is above £123,700, then you don’t get the full amount of the Personal Allowance.
What are the current Income Tax rates and bands?
The current tax rates and bands are as follows:
|Band||Taxable Income||Income Tax Rate|
|Personal Allowance||Up to £11,850||0%|
|Basic Rate||£11,851 to £46,350||20%|
|Higher Rate||£46,351 to £150,000||40%|
|Additional Rate||Over £150,000||45%|
These apply if you have a standard Personal Allowance of £11,850. The bands for Income Tax are different if you live in Scotland and pay Scottish Income Tax.
If your taxable income is over £123,000, you won’t get a tax-free Personal Allowance.
How can you tell how much Income Tax you have paid?
You can check how much Income Tax you have paid by using the HMRC online service. This will tell you what your Personal Allowance and tax code are, how much tax you have paid in the current tax year and how much you are likely to pay for the remainder of the tax year. You can also check how much Income Tax you paid in the previous tax year.
Does the Personal Allowance also apply to savings and dividend income?
No, you will also have tax-free allowances for any income you receive from savings interest and share dividends.
The savings interest tax-free allowance starts at £5,000 if you have an income of £16,850 or less. This tax-free allowance is then reduced by £1 for each £1 of other income above £16,850.
The tax-free allowance for share dividends is £2,000. This means that the first £2,000 in share dividends you receive in any tax year is tax-free. Any share dividend income above this tax-free allowance is then taxed depending on the Income Tax band you’re in.
You will also get a £1,000 tax-free allowance for any money you make through self-employment or rental income (unless covered under the Rent a Room Scheme).
Are there any ways to pay less Income Tax?
You might be eligible for certain Income Tax reliefs, which will reduce the amount of tax you have to pay. These include tax reliefs on your business expenses if you are self-employed, or tax reliefs on travel or equipment costs that have left you out of pocket if you are employed.
If you are married or in a civil partnership, you might be able to claim Marriage Allowance to reduce your partner’s tax if your income is less than £11,850 so you don’t use all of your Personal Allowance. If you or your partner were born before 6th April 1935, you could be eligible to claim Married Couple’s Allowance instead of Marriage Allowance. Married Couple’s Allowance is worth a little bit more than Marriage Allowance.
What were the rates for the tax year 2016/17?
The rates and bands were different for the 2016/17 tax year, which ran from 6th April 2016 to 5th April 2017. The standard personal allowance for that year was lower too, at £11,000.
The tax rates and bands were as follows:
|Tax Rate||Taxable income above the £11,000 Personal Allowance for the 2016/17 tax year|
|£0 to £32,000
People who were eligible for the standard Personal Allowance would pay this on any income above £11,000
|£32,001 to £150,000
People with the standard Personal Allowance would pay this rate on income above £43,000
|This would be paid on any income above £150,000|
As with the current tax year, if you were eligible for Marriage Allowance or Blind Person’s Allowance, your personal allowance would be larger. It would have been smaller if your income was more than £100,000.
If you want information on tax rates and bands for previous tax years before 2016/17, you can get these on the HMRC website.
What will you pay if your income is over £100,000?
If you have an income over £100,000, you aren’t entitled to the full Personal Allowance amount. It goes down £1 for each £2 of adjusted net income above £100,000. What this means is that for incomes of £123,700 and above, there is no tax-free Personal Allowance.
Adjusted net income is your total taxable income before any Personal Allowances have been applied but minus any tax reliefs you might be eligible to, such as trading losses, GiftAid charitable donations, gross pension contributions or pension contributions where your pension provider has already given you basic rate tax relief.
If you have an income of £100,000 or over, you will also have to complete and send a Self Assessment tax return. If you have never sent a Self Assessment tax return before, you will need to register for Self Assessment with HMRC following the tax year when you had the income of £100,000.
Once you have registered, HMRC will write to you and tell you what you need to do next.
How can DSR Tax Claims help?
We aim to make life as simple as possible for our clients and that includes giving you the information you need to make your taxes (and your life) simpler and less stressful. Our team of experts at DSR Tax Claims are always on hand to help our clients and our excellent standing with HMRC means that we can make sure you don’t fall foul of their regulations, while claiming your maximum tax rebate. We can even take care of all that paperwork and deal with HMRC on your behalf too. Call our friendly team on 0330 122 9972 – we’re the tax experts you can trust.
This page was last updated on 26/10/2018.